<PAGE> 1
[SENTRY LOGO]
Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[GRAPHIC]
SEMI-ANNUAL REPORT
JUNE 30, 1996
SENTRY LIFE INSURANCE COMPANY
<PAGE> 2
Dear Policy Owner: August 15, 1996
We are pleased to provide you with this report on the Self-Directed Life
Insurance results for the six-month period ended June 30, 1996, together with
the following comments from the investment advisor, Neuberger & Berman
Management, Incorporated.
Through the first half of 1996, our equity Portfolios were positively impacted
by a generally strong stock market, while our fixed-income Portfolios were
held back by a very weak bond market.
The strategy for Neuberger & Berman Liquid Assets Investments during this time
was to heed the depressed bond market with caution. There was a sharp increase
in interest rates, which changed the yield curve dramatically. Most of the
sell-off in the bond market was caused by investors who perceived higher
inflation and improving economic progress, and feared that the Federal Reserve
Board would elect to increase short-term rates. This created widespread
devaluation in the bond market and produced some of the biggest one-day bond
price declines in years. As the bond market adjusted through the first half of
1996, 3-month commercial paper in the money market sector - a popular
investment - actually dropped in yield by 2 basis points as investors sought
low risk alternatives to deteriorating bond prices (this at a time when bond
yields were increasing dramatically). Therefore, throughout the first half of
1996, we carefully took advantage of the interest-rate yield curve and
extended the weighted average portfolio maturity target range from 24 days to
44 days as the longer maturities became attractive.
Under the same bond market conditions, Neuberger & Berman AMT Limited Maturity
Bond Investments also suffered as the "bears" took over. This occurred despite
the fact that we shortened duration (duration is a measure of the Portfolio's
exposure to interest rate risk) during the first quarter. We lowered the
average portfolio duration from 2.9 years to 2.6 years during February, and
shortened it again to 2.3 years before the end of the first quarter. While the
corporate bond market remained expensive, we were still able to find some that
offered good relative value; corporate bonds made up 60% of the Portfolio by
the end of June. We maintained a 16% weighting in asset-backed securities
throughout much of the Semi-Annual Report period, which provided incremental
yield and AAA-rated credit quality. Our mortgage position was increased to 6%
in response to our changed view of interest rates. Mortgage bonds tend to hold
up better in rising rate environments because homeowners are less-tempted to
refinance their mortgages, a consumer action that often causes mortgage bonds
to prepay and lose value. The use of futures to manage interest rate risk was
our main use of derivatives. We wanted to offset some of the interest rate
risk in our heavy corporate bond weighting. We accomplished this hedging
strategy by holding a short position (a technique used to take advantage of an
anticipated decline in bond prices) in the futures contracts (agreements to
buy or sell a specific amount of a bond on a stipulated future date) of 5- and
10-year Treasuries.
The story for Neuberger & Berman AMT Growth Investments was much brighter
during the Semi-Annual Report period. Our best-performing sectors were
financial services, restaurants, and selected consumer/retail stocks. The
financial sector provided many good performers, in spite of rising interest
rates. Earnings growth and merger transactions aided a number of our holdings
in this area. Two lagging sectors were health care and technology. The HMO
(health maintenance organization) industry was our major concentration in
health care. After rebounding 50% from mid-year 1995 lows into February 1996,
the group fell from 25%-35% off its 1996 price levels through June due to
concerns regarding increased medical costs and pricing competition. First
quarter earnings were slightly below expectations for most companies. We
believe that pricing is improving and that medical cost increases can be
contained. We anticipate that the earnings growth of the companies in the
Portfolio may substantially exceed that of the overall market in 1996/97,
while the multiple valuation of the Portfolio is equal to the market on 1996
earnings and 10%-15% less than the market based on 1997 earnings. Over time,
we feel the market has generally recognized such inconsistencies.
Thank you for choosing Sentry Life for your insurance and investment needs.
Sincerely,
Dale R. Schuh
Dale R. Schuh, President and Chief Operating Officer
Sentry Life Insurance Company
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 237,027
shares (cost $237,027) $ 237,027
Growth Portfolio, 112,302
shares (cost $2,569,020) 2,805,290
Limited Maturity Bond Portfolio, 12,847
shares (cost $180,423) 173,594
Balanced Portfolio, 54,675
shares (cost $839,586) 839,223
----------
Total investments 4,055,134
Dividends receivable 838
----------
Total assets 4,055,972
LIABILITIES:
Accrued expenses 2,451
----------
Contract owners' equity (Net Assets) $4,053,521
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the six months ended June 30, 1996, 1995 and 1994 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994
Income: ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividends 4,781 4,406 2,310 997 4,390 8,224
Expenses:
Risk charges 1,145 928 919 14,415 10,448 8,779
------- ------- ------- --------- --------- ---------
Net investment income (loss) 3,636 3,478 1,391 (13,418) (6,058) (555)
------- ------- ------- --------- --------- ---------
Realized net investment gain -- -- -- 32,347 4,501 36,329
Unrealized appreciation (depreciation), net -- -- -- (119,520) 328,213 (411,943)
Capital gain distributions received -- -- 210 233,304 58,834 192,558
------- ------- ------- --------- --------- ---------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- -- 210 146,131 391,548 (183,056)
------- ------- ------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity from operations 3,636 3,478 1,601 132,713 385,490 (183,611)
------- ------- ------- --------- --------- ---------
Purchase payments 54,569 30,251 58,085 273,124 255,668 256,150
Transfers between subaccounts, net (35,049) (51,452) (28,925) 33,315 29,595 42,662
Withdrawals and surrenders (16) (219) (607) (88,220) (70,740) (67,280)
Monthly deductions (6,651) (5,920) (6,978) (103,527) (89,211) (74,380)
Policy loans (685) (9) 35 (17,814) (33,337) (54,362)
------- ------- ------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity derived from principal
transactions 12,168 (27,349) 21,610 96,878 91,975 102,790
------- ------- ------- --------- --------- ---------
Total increase (decrease) in contract
owners' equity 15,804 (23,871) 23,211 229,591 477,465 (80,821)
Contract owners' equity at beginning of year 221,447 190,683 160,967 2,574,908 1,811,605 1,666,768
------- ------- ------- --------- --------- ---------
Contract owners' equity at end of year 237,251 166,812 184,178 2,804,499 2,289,070 1,585,947
======= ======= ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
<TABLE>
<CAPTION>
LIQUID MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
---------------------------------- ---------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------- ------- ------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15,386 9,541 7,291 18,652 11,714 9,450 39,816 30,051 27,275
951 942 1,015 4,322 3,491 3,194 20,833 15,809 13,907
------- ------- ------- -------- ------- ------- --------- --------- ---------
14,435 8,599 6,276 14,330 8,223 6,256 18,983 14,242 13,368
------- ------- ------- -------- ------- ------- --------- --------- ---------
(838) 115 99 6,027 4,584 8,259 37,536 9,200 44,687
(14,063) 1,349 (10,849) (104,364) 79,075 (75,699) (237,947) 408,637 (498,491)
-- -- 1,080 103,719 3,765 15,613 337,023 62,599 209,461
------- ------- ------- -------- ------- ------- --------- --------- ---------
(14,901) 1,464 (9,670) 5,382 87,424 (51,827) 136,612 480,436 (244,343)
------- ------- ------- -------- ------- ------- --------- --------- ---------
(466) 10,063 (3,394) 19,712 95,647 (45,571) 155,595 494,678 (230,975)
------- ------- ------- -------- ------- ------- --------- --------- ---------
12,509 15,995 11,935 61,414 94,605 44,349 401,616 396,519 370,519
(11,586) 10,336 2,573 13,320 11,521 (16,310) - - -
(59) (11,850) (15,940) (3,204) (21,987) (7,689) (91,499) (104,796) (91,516)
(6,051) (6,768) (6,541) (43,770) (40,022) (33,849) (159,999) (141,921) (121,748)
(1,028) 23 (62) (2,806) 4,375 (6,020) (22,333) (28,948) (60,409)
------- ------- ------- -------- ------- ------- --------- --------- ---------
(6,215) 7,736 (8,035) 24,954 48,492 (19,519) 127,785 120,854 96,846
------- ------- ------- -------- ------- ------- --------- --------- ---------
(6,681) 17,799 (11,429) 44,666 144,139 (65,090) 283,380 615,532 (134,129)
180,182 167,729 195,958 793,604 607,854 637,593 3,770,141 2,777,871 2,661,286
------- ------- ------- -------- ------- ------- --------- --------- ---------
173,501 185,528 184,529 838,270 751,993 572,503 4,053,521 3,393,403 2,527,157
======= ======= ======= ======== ======= ======= ========= ========= =========
</TABLE>
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1996 and 1995
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life Account) is a
segregated investment account of the Sentry Life Insurance Company (the
Company) and is registered with the Securities and Exchange Commission as a
unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. The Variable Life Account was established by the Company on
February 12, 1985 and commenced operations on January 13, 1987. Accordingly,
it is an accounting entity wherein all segregated account transactions are
reflected.
The assets of the Variable Life Account are invested in one or more of the
portfolios of Neuberger & Berman Advisers Management Trust (the Trust) at the
portfolio's net asset value in accordance with the selection made by the
contract owners.
A copy of the Neuberger & Berman Advisers Management Trust Annual Report is
included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are based
on the daily closing prices of the underlying securities in the Trust's
portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order to
buy and sell is executed). Dividend income is recorded on the ex-dividend
date. The cost of investments sold and the corresponding capital gains and
losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable Life Account are part
of the total operations of the Company and are not taxed as a separate
entity.
Under Federal income tax law, net investment income and net realized capital
gains of the Variable Life Account which are applied to increase contract
owners' equity are not taxed.
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NOTES TO FINANCIAL STATEMENTS (Unaudited - Continued)
June 30, 1996 and 1995
3. EXPENSES
A mortality and expense risk premium and a death benefit guarantee risk
charge are deducted by the Company from the Variable Life Account on a daily
basis which is equal, on an annual basis, to 1.05% (.90% mortality and
expense risk and .15% death benefit guarantee risk charge) of the daily net
asset value of the Variable Life Account. These charges compensate the
Company for assuming these risks under the variable life contract. The
liability for accrued mortality and expense risk premium and death benefit
guarantee risk charge amounted to $2,451 at June 30, 1996.
At the beginning of each policy month, the company makes a deduction, per
contract holder, from the cash value of the policy by canceling accumulation
units. This deduction consists of the cost of insurance for the policy and
any additional benefits provided by rider, if any, for the policy month and a
$5 monthly administrative fee. The administrative fee reimburses the Company
for administrative expenses relating to the issuance and maintenance of the
contract.
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in connection with
issuing a policy. The full surrender charge will be reduced during the first
nine contract years until it reaches zero in the tenth contract year.
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are imposed
by certain states.
4. INITIAL CAPITALIZATION
Initial capital of $500 was provided by the Company for the establishment of
the Variable Life Account. As an investor in the Variable Life Account, the
Company shares pro rata in the investment performance of the Variable Life
Account and is subject to the same valuation procedures as are other contract
owners in the Variable Life Account. The Company's investment, at market
value, was $736 at June 30, 1996.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (Unaudited - Continued)
June 30, 1996 and 1995
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the related
Variable Life Account.
At June 30, 1996 ownership of the Variable Life Account was represented by
the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Neuberger & Berman
Advisers Management Trust:
Liquid Asset Portfolio 16,053 $14.78 $ 237,251
Growth Portfolio 126,634 22.15 2,804,499
Limited Maturity Bond Portfolio 10,832 16.02 173,501
Balanced Portfolio 49,056 17.09 838,270
----------
Total contract owners' equity $4,053,521
==========
</TABLE>
At June 30, 1995 ownership of the Variable Life Account was represented by the
following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Neuberger & Berman
Advisers Management Trust:
Liquid Asset Portfolio 11,699 $14.26 $ 166,812
Growth Portfolio 116,997 19.57 2,289,070
Limited Maturity Bond Portfolio 11,995 15.47 185,528
Balanced Portfolio 47,921 15.69 751,993
----------
Total contract owners' equity $3,393,403
==========
</TABLE>
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (Unaudited - Continued)
June 30, 1996 and 1995
6. PURCHASES AND SALES OF SECURITIES
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$851,706 and $367,019, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
Purchases $ 66,321 $560,216 $ 27,983 $197,186 $851,706
Proceeds on sales $ 50,311 $243,039 $ 19,811 $ 53,858 $367,019
</TABLE>
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$572,002 and $374,412, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
Purchases $ 37,340 $360,449 $ 35,872 $138,341 $572,002
Proceeds on sales $ 61,199 $216,249 $ 19,594 $ 77,370 $374,412
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$729,331 and $409,935, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
Purchases $ 77,324 $536,547 $ 30,328 $ 85,132 $729,331
Proceeds on sales $ 54,381 $241,974 $ 30,993 $ 82,587 $409,935
</TABLE>
